Consequences Of Taking Out Personal Loans
Can you afford a personal loan and do you know how it will affect you financial situation going forward?
Being granted a personal loan will clearly bring about quick financial relief or allow you to buy that new shiny thing, but can you afford to take on extra debt?
These are the questions that you need to answer & interrogate so that you have a good idea as to how the additional debt will impact on you.
Unless it’s a medical emergency or suchlike, the best course of action, for most of us, is to not sign for more credit.
However, if you’re intent on borrowing more money, let’s see if you can afford a personal loan.
What Percentage Of Your Salary Should Go To a Personal Loan?
- Your credit score
- Having a favourable banking history
- The amount of your disposable income you have
- How long you’ve been employed to determine the stability of your income
- Your risk profile
Furthermore, the amounts offered by various lenders ranges from R1,000 to R200,000.
Interestingly, Capitec Bank is South Africa’s biggest provider of unsecured personal loans in South Africa.
The other “big four” lenders,
- Standard Bank
- Nedbank
- Absa
- FNB
also offer unsecured personal loans but they generally come with higher costs & interest rates, depending on your personal financial situation above.
Can You Afford the Extra Debt That Comes With Extra Credit?
According to the South African Reserve Bank (SARB), household debt eats up 72.7% of the average South African’s disposable income.
So if you are included in the above statistic, you certainly cannot afford a personal loan.
Whilst getting the loan, may provide you with some debt relief, it will only exacerbate your financial situation and make you a slave to your debt.
3 Alternatives To Personal Loans
Even if you can afford a personal loan, the sensible option is to look for alternatives that will help you avoid taking on extra debt.
These money saving alternatives to getting a loan should be explored before placing yourself in more debt.
1. Save More Money
I can hear you asking “how do you think I can save money when I need a loan?”.
Yes I know, but no matter how low your disposable income is, by using these smart money saving tips, it’ll last longer & give your more spending power.
Therefore, if you’re going to be spending money on essentials, wouldn’t it be better to buy them at cheaper prices or benefit from your spending in some way?
Try implementing some of these easy ways you can use to save money on a low income.
- Only Shop Where You Get Loyalty Or Spend Rewards That You Can Accumulate & Use To Pay For Your Purchases - for instance only filling up at Engen stations improves my eBucks earnings which I can use to shop at multiple stores, or even use for fuel.
- Use Your Medical Aid Or Bank Partners To Get Discounted Prices On Goods
- Invest Any Savings In a High Interest Account Like a Money Market Or Money Maximiser Account
- Change Your Bank Account To One With a Fee Saver, Or No Fee, Option
- Debt Consolidation Will Save You Money On Your Total Monthly Repayments »
- More Effective Ways To Save Loads Of Money Every Month »
2. Borrow On Your Bond
If you have equity in your bond and you absolutely have to have money for an emergency, then your bond is one of the best ways to access cash quickly.
Not only is it fairly easy to access funds, but it’s a cheap and tax efficient way of doing it.
3. Get An Advance On Your Salary
For small personal loans, a salary advance is a way better choice than signing up for a costly loan from a bank.
Not only is there no interest or fees with a salary advance, but it usually won’t come with unrealistic repayment terms or other conditions.
The benefits are not having the extra loan charges as well as it not affecting your credit score.
After Reading This, Can You Still Afford a Personal Loan?
Even if you’ve decided that you can afford a personal loan, it’s worth asking yourself whether you really need it.
If you’re already living on credit just to buy food, you probably won’t get approved through the mainstream banks.
Furthermore, no matter how desperate your situation never approach loan sharks to get your loan as your life could be turned into an absolute misery.
Lastly, whether you can afford a loan or not, the best choice is always to avoid additional debt and to look for alternatives to fund your lifestyle.